Category Archives: Debt

The deal now taking shape to score a new soccer stadium in the Bronx would bail out the bondholders of the failed Bronx Parking Development Company. But it would shut out the city from receiving any of the rent or other payments it is owed for the parking sites until 2056.

The Bronx Parking Development Company runs the system of 9,300 parking spaces in a number of lots and garages built at the behest of the Yankees as part of the deal for the new Yankee Stadium. To pave the way for the lots and garages scattered near the stadium, the city leased about 20 acres of land—including 3 acres of parkland—to the parking company, provided a $39 million direct subsidy (the state kicked in an additional $70 million), and issued $238 million in tax-exempt bonds.

The parking spots have been underutilized because of good mass transit options for getting to the ballpark and overpriced compared with nearby parking alternatives. As a result, the Bronx parking company has effectively defaulted on its bonds and failed to make any of the $3.2 million in annual rent as well as payments in lieu of taxes it owes the city since leasing the land in 2008. In need of new revenue, the company issued a request for proposals last spring to sublease and redevelop two of the sites near Yankee Stadium. Now a deal for a new soccer stadium has emerged, with a portion of the proposed 10-acre stadium site incorporating a third site leased to Bronx parking.

The New York City Football Club, a partnership of the Yankees and the Manchester City Football Club (a British Premiere League team), would pay the Bronx Parking Development Company $25 million for its part of the proposed stadium site. Under the terms of the so-called forbearance agreement between bondholders and the Bronx parking company, three new series of bonds would be issued to replace the originals as part of the restructuring of the company’s debt. No provisions are made for money owed to the city.

The lease the city signed with the Bronx parking company anticipated that revenue could fall short of needs and made debts to the city secondary to those of bondholders. The terms of the new bonds presume the city will get nothing for more than 40 years. All revenue received by Bronx parking, from the proposed soccer site as well as the parking company’s other sites, would go to bondholders. Two of the three series of new bonds would not reach maturity until 2056, meaning the city would not begin receiving lease or other payments from Bronx parking until then—foregoing about $150 million in lease revenue alone.

Even as the city would be giving up this revenue, published reports indicate taxpayers are being asked for more to support the construction of the proposed $350 million, 28,000-seat soccer stadium: tax breaks, additional public land, and more tax-exempt financing issued by the city’s Industrial Development Agency.

Whether or not the soccer stadium gets built as currently proposed, it may be decades before the city’s initial subsidy of the parking system delivers any of the expected returns to New Yorkers.

In 1970, Joni Mitchell famously sang about tearing down paradise to put up a parking lot. More than 40 years later, it looks like a financially troubled set of parking lots and garages built in conjunction with the new Yankee Stadium will add a different twist to Mitchell’s refrain.

The parking system, which contains nearly 9,300 spaces, was built with substantial public subsidies, including $238 million in tax-exempt bonds and direct subsidies of $70 million from the state and $39 million from the city. Additionally, about 3 acres were removed from use as city parkland and leased by the city to the parking system. Use of the garages and lots has been well below expectation and the parking system has not generated sufficient revenue to make recent payments to bondholders.

With the Bronx Parking Development Company, which runs the parking system, in default and in need of new revenue, a request for proposals was issued to sublease and redevelop two lots near Yankee Stadium. The responses were due June 5 to the Bronx parking company. Edward Moran, who was hired to restructure the parking company, did not respond to two e-mail requests and a follow-up phone call for information about the number of proposals received and when a selection is expected to be made.

A payment of $6.9 million was due bondholders April 1. The last payment made was in October, when the company drained much of its reserve fund to meet its obligation to bondholders. While the bonds were issued by the city’s Industrial Development Agency, the city is technically not responsible for repaying the bondholders.

Yet the city may still lose on the deal. The Bronx parking company has not paid the city any of the $3.2 million in annual rent that has been due since January 2008 nor has it made any of the required payments in lieu of taxes. Under the terms of the lease with the Bronx Parking Development Company, money owed to the city takes a back seat to payments to bondholders if revenues are insufficient to cover both.

In October 2012, it was reported that the parking company owed the city $25.5 million. City financial documents that IBO receives do not specify how much is currently owed by the Bronx parking company. Neither Moran nor the Mayor’s Office of Management and Budget responded to several requests for this information.

Although the Yankees demanded a parking system able to hold about 8,700 cars plus 600 for its own use—more parking spots than were available for the old stadium even though the new stadium holds about 6,600 fewer fans—the team itself bears no financial responsibility for the garages and lots.

Even on game days, use of the Bronx parking company’s system has been much lower than expected. A number of factors contribute to this, not the least of which is cost. The price for parking at the system’s garages and lots is higher than at the old stadium, and on game days can run as much as $48 for valet parking. There are cheaper parking alternatives nearby at the Gateway Mall and more fans are taking public transit to the game than in the past, especially after the opening of the new Metro-North railway station in 2009. Ironically, the recent request for proposals to redevelop the lots on 151st Street between River and Gerard Avenues touts the site’s easy accessibility by public transportation as a prime selling point.

Last March, City Comptroller John Liu issued an audit report critical of a number of Industrial Development Agency deals, including the one with Bronx Parking Development Company. The Comptroller’s office contended that the projections of revenue from the parking system “…were based on questionable occupancy rates and inflated attendance figures and did not account for demand fluctuations that would result from price increases and competition.”

While the default sparked the effort to redevelop two of the lots and bring in more revenue for the fiscally challenged parking company, it has also brought some new players into the saga of the parking system—including a major proponent of building a new stadium for the Yankees. Creditors hired Bracewell & Giuliani, the firm of former Mayor Rudolph Giuliani, to represent them in negotiations with Bronx Parking Development Company. The parking company agreed to pick up the tab for Bracewell & Giuliani and has budgeted $240,000 in 2013 to pay the Mayor’s firm.

But none of the expected $7.1 million in parking company operating expenditures this year include rent or payments in lieu of taxes owed to the city. As the saying goes, wait till next year.

Over the past few years, one of the biggest sources of city budget savings has come without any effect on municipal services. It’s involved no reduction in staffing. No cutback in program operations or number of New Yorkers served. The savings has come from debt service, the interest and principal the city pays on the money it borrows to build schools, fix roads, buy fire trucks, and the like.

Record low interest rates over the past few years have enabled the Bloomberg Administration to save a bundle. The cost to the city on money borrowed through variable-rate bonds has been relatively low, and the city also has been able to refinance some existing fixed-rate debt at lower interest rates than when those bonds were first issued. In IBO’s report on the Preliminary Budget for 2013, we estimated that the city had recognized $875 million in savings just on its variable-rate general obligation debt (the city also borrows large sums through an entity called TFA) due to lower than forecast interest rates in fiscal years 2010 through 2013.

Besides the $875 million in savings, there are two additional terms to focus on in that last sentence: “recognized” and “forecast.” When and how the Bloomberg Administration has been building these savings into the city budget is worth a closer look.

Take the city’s current budget plan, for example. The Mayor’s plan assumes interest rates on variable- rate general obligation bonds will be 2.45 percent through the rest of this fiscal year, which ends in June. In fact, as IBO’s Sean Campion points out, interest rates on these bonds (based on a Securities Industry and Financial Markets Association index) have been below 0.50 percent—about one-fifth of City Hall’s forecast—since April 2009.

And the Bloomberg Administration projection for this interest rate in fiscal year 2014? Try 4.15 percent. Yet there’s no indication this rate is poised to rise and the Federal Reserve has made clear its intention to keep interest rates low, at least in the near term.

While some might see the Bloomberg Administration’s interest rate projections as fiscal prudence others might view it as a bit of forecast sleight-of-hand.

Last month in IBO’s report on the Preliminary Budget for 2014, Campion estimated that if the city lowered its interest rate assumption for the rest of the fiscal year to a still-above-market-rate 0.30 percent for variable-rate bonds and issued no more of this debt in the remaining months of this fiscal year, debt service spending in 2013 would be $148 million less than currently projected. That savings won’t be recognized until late in this year’s budget cycle and will likely become part of the end-of-year surplus.

One way to look at these savings is as a cushion in case some revenue source comes in lower than expected, or some form of spending such as shelter costs for the homeless winds up costing more than budgeted. Having this type of savings tucked away in the budget plan can fill a last minute shortfall, although the city maintains a general reserve for just this purpose.

But another way to think about it is $148 million that could have been used elsewhere in this year’s budget. The considerably higher than likely projections of debt service enable the Mayor to “park” money out of sight and out of mind of Council Members and other elected officials who might want to use those funds for new or existing programs. With the much higher than likely forecast for interest rates in 2014, the amount of money that could be “freed up” in next year’s budget by a projection closer to recent trends would be even more substantial.

Despite the record low interest rates and the savings they ultimately produce in the budget, overall debt service spending under the Mayor’s budget plan continues to be one of the city’s fastest growing expenditures. Spending on debt service is projected to increase $1.7 billion from this year through 2017 (adjusted for the use of the 2012 surplus to prepay some of the 2013 cost), when debt service expenditures are expected to total $7.7 billion.

But if past is prologue, debt service costs will not grow by as much as in the budget plan. Still, costs will grow largely because of the plan for more borrowing. The Bloomberg Administration expects that the city’s total outstanding debt will grow from $68 billion this year to nearly $75 billion in 2017.